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Montpelier Re Holdings (MRH)

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We are downgrading Montpelier Re Holdings (MRH) to Underperform from Neutral based on the company's expectation of incurring operating losses in the fourth quarter. The current pricing environment in the primary insurance market and the stressed economy are expected to restrict top-line growth.

Montpelier has guided fourth-quarter 2011 net operating loss in the range of $0.25-$0.35 per share. Montpelier's fourth quarter loss guidance includes an adverse impact of $40 million arising from floods in Thailand, an adverse impact of $26 million from catastrophe losses and also takes into account favorable prior year loss reserve development of $18 million.

Our six-month target price is $16.00. This price target along with the annual dividend of $0.42 implies a negative return of 10.3% over that period. This is consistent with our Underperform rating.

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